Building your hospital bill: Construction costs not a top factor in expense of health care, experts say

Sunday

Jun 28, 2009 at 3:15 AMJun 28, 2009 at 5:59 AM

By ADAM D. KRAUSSakraussfosters.com

Battling a bronchial infection, Meredith Marquis waited with her daughter in the Wentworth-Douglass Hospital lobby, watching water stream down 33 feet of granite into a collecting pool filled with pennies.

She called the scene "calming," which helps her relax "before you go in."

Then she thought about it a bit more as her daughter, Katelynn, 13, questioned how the water manages to fall without splashing the leather chairs and glossy wooden tables stationed next to the waterfall.

"I've often wondered how much it costs ...," Marquis said, "because health care is so expensive and people are losing jobs."

The hospital installed the waterfall — cut in the form of the state of New Hampshire, with lines delineating the counties — several years ago as part of a larger, $20 million project that included expanding the Seacoast Cancer Center.

When it comes to health care, everything comes with a cost, said WDH President Greg Walker, but the waterfall, which actually covers heating ducts, "doesn't really cost you."

"It's tenths of cents. It's so inconsequential," he said during a recent interview. "Our annual operating expenses are $250 million a year on an annualized basis, so you take a small construction project, depreciate it over 20 years, and it's literally a rounding error on most things."

"Healing environment" decorations like the waterfall and new construction or renovation projects, including a proposed $67 million undertaking at WDH, are not driving the ever-increasing costs of health care, he said.

The real culprits are the costs of labor, the life-saving equipment that fills buildings and increasingly expensive medication, Walker said. WDH shelled out $2.9 million for medicine in 2000, about half of which was for chemotherapy, but that had jumped to $13.9 million by this year, according to the hospital.

WDH has tax-free status because it's a nonprofit corporation.

A hospital's corporate structure doesn't seem to change the argument that building costs don't have much impact on patient bills.

At the for-profit Portsmouth Regional Hospital, where a $63 million expansion and renovation is under way, Chief Financial Officer Dave McClung said hospital service rates are the result of negotiations with insurance providers and what government health programs, such as Medicare and Medicaid, provide.

"The renovation itself does not impact what the patients end up paying," he said. "We don't say, 'OK, we've got this $40 million renovation, we're going to jack up rates because of that.'"

Policy experts, however, say there's room for debate.

"As hospitals are expanding and undergoing large capital programs, these costs have got to be recovered in the future by patients," said Dennis Delay, deputy director of the New Hampshire Center for Public Policy Studies. Such costs "would rise to the surface when the hospital" negotiates with insurance companies for rates for the coming year, he said.

Dr. James Squires, president of the Endowment for Health, a New Hampshire nonprofit dedicated to improving people's health, said bonded capital investments factor into rising health care costs, but teasing out just how much "is very difficult" without knowing each hospital's cost structure and weighing the benefits of projects.

"So it's extremely difficult to make a uniform judgment on the ... financial efficacy of the expansion," he added. "It is possible, I think, to say that some of the expansions or remodeling or new construction, in their architectural design, seem to have some distance from direct patient care."

At PRH, McClung said the latest project will help patients access care, among other goals such as adding operating rooms.

"You need to freshen up," he said. "You need to improve the logistics of it. In our case, we have three different entrances. It's very confusing for the patient when they come in." With the planned common entrance, it's "going to be a better situation for the consumer all the way around."

Since 2000, the state's hospitals have invested $1.2 billion in health care infrastructure, according to a 2008 report by the Center for Public Policy Studies, with construction happening at nearly three times the rate as the prior two decades.

The activity comes as the cost of health care — factoring in visits to doctors, hospitalizations, medicine and other areas — is rising, the study noted, and as Congress is considering reforms to make health care more affordable.

Twenty years ago, spending on personal health care measured less than 10 percent of New Hampshire's economy, but today it consumes 18 percent, or more than $10 billion, according to the Center for Public Policy's report. In 20 years, the report said, the amount is expected to reach upward of 25 percent.

The average annual cost of a family health insurance plan has grown from $7,525 in 2000 to $12,686 in 2006, according to the center.

Hospitals are quick to point out that what they charge is regulated, whether because of government programs' set fees, insurers' rate structures or discount programs for the uninsured.

But McClung said PRH is able to press ahead with the recent project because of strategic planning.

"You put some money in the bank for the future knowing you're going to have to fund this project," he said.

Since 2006, WDH has been approved for nearly $90 million in projects, including the latest $67 million undertaking, a Lee medical office building and the expansion of the birthing center.

In Rochester, Frisbie Memorial Hospital was approved for a $42.6 million expansion and renovation. Exeter Hospital has been approved for more than $18 million in changes, including nearly $6 million to establish radiation therapy services. Lakes Regional General Hospital in Laconia was approved to spend more than $51 million on an addition to the hospital and an expansion of its Hillside Medical Park in Gilford.

Within DHHS, a 10-member planning and review board appointed by the governor oversees the approval process for hospitals' certificates of need, which are required for a health care facility to proceed with multimillion-dollar projects.

WDH's latest project quickly gained approval from Dover's Planning Board. But the hospital has delayed seeking state approval until the economy improves for debt financing. It is less about adding "special technology," according to its certificate of need application. Instead, the project is "designed to correct an existing serious access and flow problem in which the hospital's lack of bed capacity is beginning to cripple our ability to meet growing community need," and the project is not expected to affect patient charges.

The $67 million project, once financing is in place, is expected to increase the hospital's annual expenses by more than $1.9 million out of a $250 million annual operating budget.

The project is expected to increase salaries and supplies by more than $11.7 million, says the hospital's state application, but "operational cost savings are anticipated ... through labor productivity gains and energy savings attributable to innovative design and construction."

Furthermore, WDH says, the "added operating costs will be more than offset by additional revenue projected solely by extending current volume and revenue trends into the future."

As for whether those savings will result in lower costs for patients, Walker said it's more likely the rate of future cost increases will slow "because year over year my labor costs go up 3 or 4 percent, and saving 1 percent by being more efficient doesn't mean the bill will go down."

It just won't increase by as much, he said.

There's been an evolution of sorts in patients' expectations over the years, which has affected how hospitals operate, Walker said.

Advances in patient care, in the practice of medicine and "changing consumer preferences and expectations" have rendered WDH's inpatient facilities inadequate, according to its application.

Once the project is complete, the hospital "will feel noninstitutional and promote healing." Windows will be larger to allow for more daylight, and the carpeted corridors "are intended to promote a quiet and peaceful setting," the application says.

"As we do a better job curing people ... the costs go up dramatically because we're keeping sick people alive for a very long period of time," Walker said. "It's funny — people talk about cost, cost, cost until they're the patient. And then it's 'do everything regardless of the cost,' and that's always the dilemma."